Government allays fears of power, fuel price hikes

JAKARTA (JP): Minister of Mines and Energy Susilo Bambang Yudhoyono allayed on Tuesday any fears of an imminent price hike for electricity and fuel.

"The government is not considering or has not planned to raise power and fuel prices," Yudhoyono said prior to a meeting of the economic, finance and industry ministers.

Yudhoyono said state electricity company PT PLN, which had requested government permission to raise the electricity tariff, should find efficiency improvements and other alternatives to increase its earnings and ease its financial burdens.

The three-star Army general said any plan to hike power and fuel costs should be carefully considered given the social and political impact of such a move.

"Thus, the public does not need to be worried since the government will realistically discern and deeply study the issues concerning fuel and power subsidies before taking a decision to raise their prices," Yudhoyono said.

The government has provided subsidies to Pertamina for the sale of most types of fuel for decades, and to PLN for the sale of power since the monetary crisis hit the country in 1997.

The government last raised fuel and power prices in May 1998 -- a decision which sparked riots leading to the downfall of former president Soeharto.

PLN president Adhi Satriya said on Monday he had asked the government to allow the cash-strapped state company to increase the electricity tariff by 68 percent next year.

Adhi said the hike would enable PLN to reach a break-event point next year and fulfill some of its financial obligations to the independent power producer (IPP).

He said PLN would continue its dependence on government subsidies unless it was allowed to raise the power price.

He said PLN's production cost currently reached Rp 340 (about 5 US cents) per kilowatt hour (kWh), as against its selling price of 240 per kWh.

PLN suffered Rp 9.13 trillion in losses last year, up from Rp 580 billion in 1997. This year, PLN is projected to suffer a loss of Rp 1.728 trillion.

PLN sells power in rupiah but pays most of its costs, including the cost of power supplies from independent power producers (IPPs), in dollars.

PLN has signed 27 power purchase agreements with IPPs who are mostly joint ventures between international energy companies and former president Soeharto's family and cronies.

PLN has been holding negotiations with the IPPs to reduce the price of their power supplies to PLN under the power purchase agreements.

New State Minister of Investment/State Enterprises Laksamana Sukardi earlier said the government was considering cutting fuel and power subsidies to ease burdens on the state budgets. (jsk/rei)